DUBAI BUDGET 2013: Spending to increase by 6% while budget deficit to be cut by 18%

Dubai has released a 2013 budget plan that would raise spending moderately while cutting the size of its deficit by 18 percent, aiming to balance boosting economic growth with fixing state finances after its 2009-2010 debt crisis.

Authorities could have eliminated the deficit entirely but decided instead to increase state spending in order to fund welfare and infrastructure projects, Abdulrahman al-Saleh, director general of the department of finance, said on Monday.

Saleh said that by cutting the annual deficit to below 0.5 percent of gross domestic product, the 2013 budget demonstrated Dubai’s commitment to balancing its budget over time.

The emirate is still recovering from a 2009-2010 property market crash that forced state-linked companies to restructure billions of dollars of debt, and was only brought under control when Dubai got $10 billion of aid from neighbouring Abu Dhabi.

Revenue is projected at 32.62 billion dirhams ($8.89 billion) in 2013, up 7.8 percent from the 2012 budget plan. Tax revenues are expected to jump 15 percent because of a strong economy; allocations to revenue from government enterprises are being cut to allow for more reinvestment in the economy.

Dubai’s property market has started to recover this year and economic growth was strong, easing pressure on state finances, and a plunge of the yields on bonds issued in the emirate showed increasing investor confidence.

But Dubai must be careful to retain the trust of the markets since the International Monetary Fund estimates its government-linked entities will need to repay about $9.4 billion of maturing bonds and syndicated loans in 2013, and $31.0 billion in 2014 – a refinancing task which the IMF calls “a challenge”.

State spending is expected to rise 6 percent in 2013 to 34.12 billion dirhams. The government said 39 percent of its spending would go towards salaries and wages, partly because it would create a further 1,600 jobs for local citizens. Reducing unemployment in the local population, in an economy where most work is done by foreigners, is a top policy goal.

The budget deficit is to total 1.5 billion dirhams. The government said its 2013 plan included an operating budget surplus, excluding one-off items, of 204 million dirhams.

The statement on the budget plan did not say if Dubai would issue government bonds to finance the deficit. In September, Saleh said Dubai planned to sell a bond to refinance part of 6.5 billion dirhams of sovereign debt maturing in April 2013.

Most of the UAE’s state expenditures are conducted by the seven individual emirates rather than the federal government, with Dubai accounting for about 10 percent of the total.